August 7, 1996
Summary
Reports from Beige Book contacts suggest a recent pickup in growth
in California and Washington, partly tempered by a moderation of the
rapid pace of growth in other Twelfth District states. Overall,
there appears to have been a gain in District manufacturing
activity, with the locus of growth shifting toward California and
Washington, where residential real estate markets also are firming
noticeably. Among services, communications and software development
are particularly strong. Retail sales in the District generally were
reported to have increased in recent months. Wage inflation
pressures are evident in some areas.
Business Sentiment
About three-quarters of our contacts in the District, including
almost all respondents from Northern and Southern California, expect
growth in their region to outpace the national growth rate, which
most expect to be at or above its trend pace over the next year.
Survey respondents expect tightness in labor markets to continue for
a while, and prospects for inflation are perceived to have worsened
slightly in the past few months.
Retail Trade and Services
Retail sales in the District generally were reported to have
increased further in recent months. Business improved at food stores
in the Pacific Northwest and Intermountain states. In Utah, retail
sales reportedly were strong in July, particularly for apparel and
autos. In Washington, strong sales were reported at small retailers,
major conventional grocery chains, and club-warehouse style stores.
Retailers in the Puget Sound area also reported difficulties in
recruiting qualified employees at existing wages, given increased
job availability in other industries.
In services industries, continued strong job growth also was reported to be adding to wage and price pressures. Demand for telecommunications services jumped, and software development activity expanded in California and Washington states. Computer programmers and systems engineers reportedly are in short supply. Tourism activity also has been strong this summer, leading to significant increases in hotel room rates in cities such as Salt Lake City.
Manufacturing
Overall, there appears to have been a gain in District manufacturing
activity in recent months, although emerging weakness was reported
in a few localities. In Washington state, aircraft manufacturing is
picking up, and electronics components manufacturers are benefiting
from this and from the growth in demand for other types of business
equipment. The rebound in commercial aircraft also reportedly is
boosting orders for fabricated materials, components, and machine
tools from suppliers in Oregon, Southern California, and Nevada.
Lumber production reportedly increased in recent months. Food
manufacturing was down in a few areas where harvests were delayed by
wet weather. Manufacturing of information processing equipment and
components reportedly was increasing in some areas and being scaled
back in others; in general, such activity is increasing in
California, particularly in research and development areas such as
Silicon Valley, but there is a moderation of the rapid growth in
manufacturing of computers and related equipment in the Pacific
Northwest and Intermountain states.
Agriculture and Resource-Related Industries
Agricultural production reportedly was mixed, depending on the
commodity. In general, demand for agricultural products was strong,
buoyed by growing exports, and prices for several commodities were
reported to have firmed. The supply of cotton was reported to be
higher than last year, and tree fruits were plentiful, but yields on
nut crops were medium to poor. Dairy products prices are increasing
relatively fast.
Real Estate and Construction
Residential home sales and construction reportedly have strengthened
in Washington and California, but the residential market is cooling
a little in Oregon, Idaho, and Utah, following rapid earlier gains.
However, throughout the Pacific Northwest and Intermountain states,
nonresidential real estate vacancy rates are relatively low, and
building of offices, commercial space, industrial facilities, and
public infrastructure continued strong. Within California, the
strength in nonresidential building is concentrated in the San
Francisco Bay Area; many segments of the Los Angeles area
nonresidential real estate market continue to experience high
vacancy rates and not much construction.
Financial Institutions
District financial institutions generally reported firm loan demand
and wide credit availability. Asset quality generally remained high,
with only a modest deterioration in some consumer lines, such as
credit card loans. Financial institutions reported pressures for
large wage increases for information systems jobs and for entry-level customer service jobs in those localities with low
unemployment rates.